NTPC Steps In

Acquisition of three thermal plants in Bihar to lower the cost of generation

The country’s largest power generation company, NTPC Limited recently announced the acquisition of three projects in Bihar, aggregating over 3 GW, in a Rs 56 billion deal as part of its drive to augment capacity inorganically.

In May 2018, NTPC signed an MoU with the Bihar government to acquire Bihar State Power Generation Company Limited’s (BSPGCL) Barauni thermal power station (TPS) as well as the latter’s stake in two joint ventures (JVs) between them – Kanti Bijlee Utpadan Nigam Limited (KBUNL) and Nabinagar Power Generating Company (Private) Limited (NPGCL). With this deal, NTPC’s total capacity across the three plants will stand at 3,310 MW, of which, 1,080 MW is operational and 2,230 MW is under construction.

Acquisition details

In terms of value, the 720 MW Barauni TPS at Begusarai, valued at Rs 35 billion, accounts for 63 per cent of the deal value. The plant comprises the 2×110 MW Stage I, which is at an advanced stage of renovation and modernisation, and the 2×250 MW Stage II, of which 250 MW is under construction. Apart from this, BSPGCL’s equity stake in NPGCL has been valued at Rs 17 billion. NPGCL was set up as a 50:50 JV between NTPC and BSPGCL for developing the 1,980 MW Nabinagar super thermal power project (STPP) in Aurangabad, Bihar. The project, comprising three units of 660 MW each, is currently under construction.

Regarding KBUNL, NTPC has acquired BSPGCL’s stake in the company for Rs 4 billion. KBUNL was set up as a JV between NTPC and BSPGCL, with an equity holding of 72.64 per cent and 27.36 per cent respectively. KBUNL owns and operates the 610 MW Muzaffarpur TPS at Kanti in Bihar. The plant comprises two units of 110 MW each and two units of 195 MW each. The Muzaffarpur TPS was identified as a stressed asset by the Ministry of Power.

Media reports estimate that of the total deal value, around Rs 40 billion would be used for paying back loans taken from different agencies, Rs 4 billion for clearing NTPC’s dues against the power purchase, and the rest for completing the units under construction at the Barauni TPP.

Outcomes

NTPC’s acquisition is expected to significantly lower the cost of power generation. A prime example is NTPC’s acquisition of the Talcher plant from the erstwhile Odisha State Electricity Board back in 1995, which led to the enhancement of the project’s plant load factor (PLF) from 19 per cent to over 90 per cent over a period of eight years. In addition, NTPC will be able to avail coal at a cheaper rate for the plants, and NTPC also benefits from loans at a cheaper rate from the market.

On account of the procurement of cheaper power, the state government is likely to derive savings of Rs 8.75 billion annually. Plant-wise, the state will be able to save Rs 6.84 billion per year on procurement from the Barauni TPS, Rs 546.9 million per year from KBUNL and Rs 1.36 billion from NPGCL. The savings gained by the state will be used for providing cheaper and uninterrupted power to end consumers. With regard to the power plants under construction, given its expertise in the construction of power projects and its contract management capabilities, NTPC is expected to complete the balance works of units in a time-bound manner.

Other acquisition plans

NTPC has been actively looking for brownfield projects to acquire either plants from state utilities or stressed assets with sound fundamentals. In end 2017, the company had issued a tender to acquire stressed thermal assets. The conditions listed in the tender included a commercial operation date of the plant after April 1, 2014; a generation capacity of at least 500 MW; plant design support operations on 100 per cent domestic coal for the rated capacity; the availability of coal for 85 per cent PLF or capacity utilisation, and locally manufactured equipment. Reportedly, NTPC received proposals for stressed assets aggregating 6,480 MW. The proposals included those of Jindal India Thermal Power Limited’s 1,200 MW Derang TPP, Lalitpur Power Generation Company Limited’s 1,980 MW Lalitpur TPP, Jaiprakash Power Ventures Limited’s (JPVL) 1,320 MW Nigrie TPP, and the 1,980 MW Barah TPP, run by a subsidiary of JPVL.

In another attempt to acquire state-owned coal-based assets, earlier, in 2017, NTPC had signed a non-binding MoU with the Rajasthan government to take over the Chhabra TPP. While the total cost of the plant is estimated at Rs 150 billion, NTPC was supposed to pay Rs 50 billion for the 1,000 MW plant. However, the deal fell through owing to political reasons.

To conclude, NTPC’s acquisition is a win-win for Bihar’s state utilities. It will help in providing cheaper power to discoms, thereby redressing the state distribution segment’s financial woes, and also help in the revival of the stressed assets. For NTPC, with a portfolio of 53,651 MW of operational and 20,000 MW of under-construction projects, the latest deal will enable it to quickly expand its capacity.